BE268 International Business and Strategy
Business internationalisation can be briefly described as the process adopted by business to establish the company internationally. L’Oréal is a company, which provides cosmetic products for both men and women. The company has adopted certain strategies for the internationalisation of the company. In this essay, the international growth and motivation of L’Oréal’s value chain activities of the company, and the benefits of the internationalisation strategy implemented by the company will be discussed. In addition to that, the potential threats for the company that might occur in future will also be highlighted briefly.
- Critical evaluation
a. L’Oréal’s international growth and its motivations
Most business organisations nowadays are using the process of internationalisation as they have become more active to have a strong customer base in multiple countries. This process has been used by L’Oréal, because it is helping the company to increase the global presence. Company website of L’Oréal reflects its strategy of universalisation or internationalisation (Loreal, 2022). According to the company website of L’Oréal, it is using a unique strategy of universalisation to be sustainable in this era of globalisation.
The organisation has been focusing on different kinds of desires and needs of customers to implement an accurate strategy to grab customers from various countries. Apart from that, the company has been focusing on traditions of different cultures as it influences the choice of people, which can have a significant importance to make strategies to increase the product demand. In order to motivate their employees, the organisation uses strategies to make them feel that they are valuable. The company website of L’Oréal reflects that as it has taken a unique strategy for universalisation, it is mostly dependent on innovation factors (Loreal, 2022). Even the company has been motivating employees to innovate things according to the needs or desires of customers across the world.
In order to evaluate the universalisation or internationalisation of L’Oréal, the Uppsala framework can be used. According to the Uppsala model, internationalisation can be considered as a process that helps to increase involvement in global business operations. The Uppsala model presents a sequential approach that focuses on the aspects of entering a new market (Neubert, 2018). The model reflects the necessity of evaluating state variables and change variables before making strategies for internationalisation. Decision makers of L’Oréal use it to gather knowledge regarding the target market before making strategies to grab a new international market.
b. L’Oréal’s pattern of growth in term of mode of entry and geographical entrance
L’Oreal, the one of the world’s renowned cosmetics company, maintained a strong performance in the year 2018 with a 7.1% augment in revenues amounting to 26.93 billion Euros (Forbes Media, 2019). This evidence recognises its excellent success over the operating years. Moreover, it also indicates that with proactive cosmetics and L’Oreal Luxe segment mainly the L’Oreal Luxe categories and its growing market opportunities, particularly in Asia-Pacific, drove the company’s financial performance. In India, L’Oreal Paris lately commanded the outdoor scene (Forbes Media, 2019). The OOH campaign promoted the release of L’Oreal Fall Repair 3X items. In Asia, India was the very first region to see the debut of this product. The goal of the advertisement was to promote the hair fall restoration shampoo’s three advantages. The promotion was subjected specifically for women between the age of 25 and 45 who suffer from loss of hair (Forbes Media, 2019). In this case, bollywood celebrity Sonam Kapoor was approached as the product ambassador. Therefore, the growth of the organisation is huge and expressive at the entire globe (Refer to appendix 1).
Every giant company began as a small business and one of them would be L’Oréal. The company began with the Auréoleits hair colouring. L’Oréal resulted in a higher level the $840 million acquisition of Magic Holdings, a prominent Chinese beauty trademark. L’Oréal had reached an agreement with Nestlé to start buying 8% of its stock for $4.18 billion (Dianrama, 2019). L’Oréal adopted the universalisation, which is one-of-a-kind approach that helped the company target their customers more conveniently. Universalisation is a form of globalisation that recognises, acknowledges, and respects differences in consumer preferences and demands (Neubert, 2018). The company further endows with custom-made elegance that satisfies customer desires at global level. Such factors drive L’Oréal’s success over the years of establishment. Universalisation is establishing a genuinely global presence with a strategic objective for L’Oréal.
They established a global network of R&D and commercial centres, one each for our core markets: Japan, the United States, Brazil, India, China, and South Africa (Loreal, 2022.). L’Oréal has a massive manufacturing base to sustain their future development, allowing these discoveries to be put on the market quickly and efficiently. Additionally, with geographical location, L’Oréal also focused on digitalisation as an once-in-a-lifetime step to create new partnerships with customers, collaborators, and workers centred on creativity, authenticity, openness, and trustworthiness. They have evolved into a ‘Digital First‘ corporation in recent times, which provides new opportunities for producing new products while also fostering particular relationships with its customers (Loreal, 2022).
L’Oréal’s value chain activities
The value chain in an organisation requires both primary and secondary and secondary activities. Primary value chain refers to the inbound logistics, services and sales, outbound logistics and many more. However, the secondary value chain includes HRM, firm infrastructure, and other organisational departments (Reinartz et al, 2019). Value chain is the one of the major elements of an organisation, which has the possibility to enhance organisational performance. It has been identified that over the years, L’Oréal has significantly transformed their value chain activities especially in the area of inbound activities (Reinartz et al, 2019). The luxury organisation used to acquire raw material and other material for the suppliers who are effective with their operation, so that L’Oréal could provide the high quality and differentiable products to their respective customer.
It has been identified from their key objectives, the corporation is keen and focused about sustainability due to which they have decided that 100% of the water, which is being utilised for their production process will be recycled and reused by next 10 years (Loreal, 2022). Additionally, 95% of the ingredients will be bio based and all packaging will be either bio based or recyclable (Refer to appendix 2). Furthermore, in terms of outbound logistics, the organisation has their own distribution team for prospective retailers, distributors and retail stores. Additionally, the brand has their both offline and online promotional marketing to increase awareness about their brand image effectively (Xia et al, 2021). L’Oréal is more focused on their celebrity endorsement, which became the strength of the brand (Refer to appendix 3). Primarily, L’Oréal is also efficient with their hybrid divisional organisational structure that enhances customer service and management practices, which has helped the organisation to meet all the consumer demands and requirements (Loreal, 2022). The customer support team is always ready to assist consumers, which automatically enhance their value.
- Advantages of the current internationalisation strategy adopted by the company
The company website of L’Oréal reflects the effectiveness of its unique strategy of Universalisation. The organisation has been using some factors while making strategies, which are based on customers’ requirements. The current situation of the company is reflecting that its internationalisation strategy has brought benefits. The strategy of expanding the business in the international market has been helping it to take decisions to increase its customer base.
The current strategy of internationalisation has increased the global presence of L’Oréal. On the other hand, this kind of strategy has helped the company to increase its revenue rate (Refer to appendix 4). It has been observed that the organisation has been using a customer base product division strategy and that has generated approximately 11.7 billion Euros in revenue (Statista, 2022).
Apart from that, this strategy of universalisation has been helping the organisation to maintain diversification. The internationalisation strategy of the company has been motivating employees by providing training, which is helping it to maintain a good organisational culture (Loreal, 2022). The company has been able to retain employees from different cultural backgrounds that helped in conceptualising innovation. The strategy of entering a new market increases its global presence; this is the main advantage as it helps the company to increase its competitive advantages. For example, the company has a strong customer base in Western Europe, North America, Asian Pacific, Latin America, and Eastern Europe (Loreal-finance, 2022). Universalisation strategies of the company increase its foreign investments that influence its business growth. On the other hand, the company website reflects that it is providing importance to local factors to innovate things that satisfy its customers. After analysing the factors of the universalisation, it can be said that the company has been using a global-local balanced strategy that is undoubtedly helping it to grow more and increase competitive advantages.
- Potential threats L’Oréal may face in the future
There are several potential threats for the company that might affect the company’s growth and development in future. These threats include many factors like increasing competition in the industry, the decline in sales during and after the pandemic, disruption in the supply chain of the company and others. As L’Oréal operates in the cosmetic and self-care industry, there are several competitors in the industry, which have already gained popularity globally like Chanel, Revlon, Maybelline and others (Carrilho, 2018). These companies can be a great threat for L’Oréal in future; in addition to these, emergence of new companies in the market is also a potential threat for the company. The economic downturn in many developing and underdeveloped countries can create financial threat for L’Oréal in future. This downturn can affect the profit of the company in a negative manner. Another potential threat for L’Oréal is the product substitution, even though the company may be producing high quality products of its field, it can be out of reach of certain groups of consumers for its dynamic pricing (Carrilho, 2018). Thus, people can choose other cheaper products. Apart from that, the huge employee base in the company causes large human capital expenditure, which can affect the revenue of the company in future.
Supply chain of L’Oréal has secured good rank on global level; still there is the probability of supply chain disruption in future. The above mentioned threats can be tackled by thorough analysis of the problems. For example, the supply chain of the company can be enhanced with the use of Artificial Intelligence, Machine Learning and proper strategies (Hudson et al, 2018). L’Oréal can also deal with competitors by designing proper marketing strategies and extensive product promotion on mainstream media and social media platforms. Cost reduction of products can also be an effective solution for the potential threats of product substitution and low profit margin in developing countries. Focusing on online sales can also be helpful for the company to deal with declining sales in future to avoid the similar situation, which took place during the pandemic (Hudson et al, 2018).
- Evidence of the evaluation of the literature and data sources
In order to investigate the internationalisation process of L’Oréal, I have used the company website. Apart from that, the use of reliable secondary sources has helped me to evaluate and investigate the context. I have included some data and graphs as evidence of provided information regarding the company. Evidence regarding the company and its internationalisation process has been collected from authentic websites. Collected information from reliable sources has helped the study to be enriched with authentic, transparent and fair information. The organisational website of L’Oreal has been used to collect data regarding their market entry mode, universalisation process, diversity, and strategy making process. Secondary resources such as journal articles have been used to evaluate the process of internationalisation of business organisations and its impacts on revenue generation (Dörner, 2018). These kinds of secondary resources have been used to support models of the internationalisation process and other additional information regarding this context.
In conclusion, it can be stated that the internationalisation strategy adopted by L’Oréal has been effective in the organisational expansion globally. The company has achieved a large global presence. The growth pattern of the company is excellent with subsequent future opportunities and the supply chain is also very efficient as compared to other competitive companies. Certain potential threats for the company have been observed but these threats can be tackled by implementing different techniques and strategies (Collin and Taillard, 2021).
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(Source: Statista, 2022)
(Source: Barras-Hill, 2020)
(Source: Statista, 2022)
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